June 13, 2024

Why Nigerian start-ups are struggling

NAS tasks youths on skills, empowers 10

•Unable to raise more unicorns since 2021

•Policy somersault, a major setback to attaining unicorn

•Japa syndrome has limited startups’ growth

•Inflation and economic meltdown stagnates SMEs

By Juliet Umeh

Despite Nigeria leading the African start-up ecosystem with over 16, 000 startups, the startups are unfortunately not growing into unicorns like western countries.

Unicorn means a privately-owned startup business that is worth more than $1 billion. It means a startup ( newly established business) that has attracted massive funding from investors, in its early-stage and later-stage circles. 

In Africa, there are seven unicorns, as of 2021. Out of this number, Nigeria has five. They are Jumia, Interswitch, Andela, Opay and Flutterwave.

Business analysts say that for a country with a population of over 200 million, five unicorns are abysmal. They stated that the figures which appear stagnated shows the country as an environment that stifles business growth.

However, some other experts attributed the stagnation to the economic headwinds that impacted the global tech industry which also led to the highest layoff of over 150,000 tech workers.

Quick look at Nigeria’s unicorns

Jumia–A pan-African technology company built around a marketplace comprising logistics and payment services, Jumia was the first company that became Africa’s unicorn. It was launched in Nigeria in 2012, and expanded to five other countries: Egypt, Morocco, Ivory Coast, Kenya and South Africa. In 2015, Jumia generated $234 million in revenue. In 2016, Jumia became the continent’s first unicorn being valued at over 1 billion USD.

Interswitch, another Unicorn, is an African integrated payments and digital commerce platform., which progressively evolved to consumer financial services with the successive launches of Quickteller, a retail payments ecosystem linking merchants and billers with consumers, as well as Verve, a homegrown, EMV-certified payments card scheme.

Among the funding that projected the company to the Unicorn height, included the $110 million it received in joint investment from Leapfrog investments and Tiana Africa Capital.

Interswitch’s last funding round was in 2019 when VISA acquired a 20 per cent stake, valued at $200 million.

OPay, a one-stop mobile-based platform for payment, transportation, food and grocery delivery, is another unicorn.

It was founded  in June 2018, the startup has raised $570 million in funding over 3 rounds, with SoftBank Vision Fund as its lead investor and three others. In total, OPay is funded by 14 investors.

OPay attained the Unicorn status in August 2021 with a $400 million investment in a Series C round, from seven Chinese-based venture investors.

Andela, a startup that connects African software engineering talent to global companies, became the country’s newest startup to attain unicorn status, in September 2021 after raising $200 million from in a Series E funding round led by Japan’s Softbank Group.

With a $1.5bn valuation, the Nigerian startup joins Senegal’s Wave and Nigeria/US-based Flutterwave as the West African unicorns of 2021..

Flutterwave is Nigeria’s other unicorn with a $2 billion valuation. It is a fintech firm that provides a payment infrastructure for global merchants and payment service providers across the continent.

In March 2021, Flutterwave’s total disclosed funding was $225m. This came after the company announced a strategic partnership with Visa and Worldpay. 

Global startups 

Meanwhile, the global unicorn population appears to be holding steady despite headwinds,

Looking at the trajectory of growth,  2017 saw 269 new Unicorns; 2018-385; 2019-491; 2020-563; 2021-959 and 2022-1,170, what this means is that Nigeria did not contribute to the 211 unicorns that were added in 2022 alone.

To stretch this is that Africa was also nowhere to be mentioned in that growth trajectory, since Nigeria carries the bulk of the statistics attributed to the continent.

Challenges before startups

Chairman of the Association of Licensed Telecom Operators of Nigeria, ALTON, an industry association for all Telecommunications Operators in Nigeria, Engr. Gbenga Adebayo, said that part of the problems inhibiting the start-ups from appreciable growth is lack of government support and poor  business environment.

He said: “Even With best innovation and brilliant ideas, without an enabling environment and access to needed capital, startups will continue to struggle. 

“Government has a lot more to do and successful entrepreneurs should also do more in mentoring and  supporting startups” Adebayo added. 

However, convener of #StartupSouth, Mr. Uche Aniche, said Nigeria does not exist in a vaccum, because globally there was a 90 percent drop in the number of Unicorns produced in the same period under review.

He said: “The Startup ecosystem is gradually emerging from what we generally refer to as the funding winter.

This means that those who would have facilitated the creation of Unicorns were not writing cheques. 

“The most affected category of Startups is the later stages.

“But aside from these, Nigeria’s macro and micro economic landscape has been very turbulent. The combination of inflation and devaluation translate to a major wipe of valuation and erosion of value.

In the view of a managing partner at Nubia Capital, a venture capital investment firm, Mr. Davidson Oturu, funding is the bigger challenge.

He said: “I think to a degree, funding and resources can be challenging. This is because, in order for you to engage the software engineers that will help you build those big platforms, you need money. 

“In order for you to scale your business, get more customers, you need money for marketing and for scaling, so, all of that can hold you down if you don’t have good financing. 

“Also, the regulatory environment can be very challenging. I think the government needs to give more incentives to start-ups through operationalising the Nigeria Start-up Act so that we can start to really give the benefits to Nigerians, the way the Act provides it. 

Also, another venture capitalist and partner at Ingressive Capital African Startups, Mrs. Nela Duke-Ekpeyong, believes that if given the same business environment and forward-looking policies like start-ups in the United Kingdom and other western countries, the Nigerian Start-up space will take the world by storm.

For her, “The only way to take Africa from poverty to prosperity is through the private sector. If we continue to wait for our government it will not happen. The start-up ecosystem must find a way to grow without government. It’s a tall order, but it’s the way out of the quagmire”